The purpose of this paper is to describe the current status in Brazilian legal scholarship with regard to the interpretation of Section 421 of the new Civil Code that provides for respect of the social function of contracts. This is normally identified with the paternalist model of contract law and its idea of distributive justice, typical from the Welfare State legislation and policy. Second, the paper suggests a critical reading of this quasi consensus that is coming up among Brazilian jurists through an economic analysis of law and its emphasis on efficiency and the consequences of paternalism. The discussion in Brazil is contextualized with the debate of paternalism versus efficiency in contract law in the United States.

The retention of title as a collateral for financing real estate property acquisitions was introduced in Brazilian legislation by Federal Law 9514 from 1997. The underpinning idea was that simplifying the recovery of the possession of the property by the financial institution against the party in default would boost the real estate industry. However, there are some indications that retention of title was not used by financial institutions in their contracts as it could. As a result, the development of the real estate industry has not arrived (at least in the proportion once predicted). The idea of this paper is to suggest, based on law and economics approach, a theoretical hypothesis for the underdevelopment of the retention of title in real estate transactions in Brazil. The main argument is that there is a gap between law in action and law on the books since Judicial Power tends to revise bargains of the parties in real state financing contracts. Thus, the market does not have incentives to use this new form of collateral. Therefore, the more important feature of the retention of title that would be the quick recovery of the possession of the property is undermined by courts. The theoretical suggestion shall be complemented with empirical work to evidence the hypothesis presented here.